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Retail sales unexpectedly fell 0.3% in May from April.

The Consumer Price Index for May was up only 1.7% over the past year.

U.S. crude closed the week at $44.73 a barrel, Brent at $47.00.

What a difference four years makes. In mid-2013, the prospect of the Federal Reserve reducing its monthly bond purchases led to a market meltdown that the Fed’s Vice Chairman Stanley Fischer recently referred to as the “taper tantrum.”

In mid-2017, the Fed not only raised its rate for the second time this year – and the third time since December – but also announced that it would begin to sell off some of the $4.5 trillion it holds in mortgage-backed securities and Treasurys. The response from investors? The Dow Jones Industrial Average finished the week at a new high of 21,384.28 on Friday, and both the S&P 500 and the Nasdaq remained within hailing distance of their record closes. It was not an entirely smooth ride for stocks, thanks to the volatile price of oil, which hit a 2017 low before rebounding on Friday, weak retail sales for May and Amazon’s announcement of its acquisition of Whole Foods. In fact, at midweek, investors hedging their bets sent the price on the 10-year Treasury to its lowest point this year.

After raising its rate to a range of 1% to 1.25% and announcing its plans to reduce its portfolio, Chairwoman Janet Yellen said, “Our decision reflects the progress the economy has made and is expected to make.” The Fed is expected to raise its rate again this year. The Fed’s statement noted the strength of the labor market, and Yellen said that she felt inflation had been held back by low prices for cellphone service, a good thing for consumers and a one-time event. As for the portfolio, beginning later this year, the Fed will shed $10 billion a month and then gradually raise the pace $10 billion in three month intervals over 12 months before leveling off at $50 billion a month.

One and done?

Yellen’s term as chair ends in February, and there has been talk that President Donald Trump will replace her – on the campaign trail he said he was “most likely” to do so. The main issue between the two is not, reportedly, policy, but regulation: Yellen has been a vocal supporter of the Dodd Frank Act and its oversight of bank risk, and Trump has been an equally vocal critic. If Yellen is not nominated for a second term, she would be the first one-term chair of the Fed in 40 years, though she could remain on the board until her term expires in 2024.

Amazon to consume Whole Foods

On Friday, Amazon announced that it will find a new use for its warehouses, and perhaps its drones: delivering food. Amazon entered the grocery business in earnest by announcing its plans to purchase Whole Foods and its 460 stores for $13.4 billion (it already runs AmazonFresh, a food delivery service for its estimated 49 million Amazon Prime subscribers, and a handful of grocery stores). The move is seen as a step in the battle for retail supremacy with Walmart, the brick-and-mortar behemoth that has in turn been delving into e-commerce. And Walmart made a move of its own last week by acquiring Bonobos, which sells men’s clothing both online and from stores, for $310 million. On Friday, the stock of Whole Foods jumped 29.1% to a two-year high as investors speculated that another suitor might appear, and Amazon was up 2.4%. Walmart’s stock, in contrast, had its worst day of the year, dropping 4.7%.

Greece avoids default

Looking to avoid a mid-summer meltdown, the European Union (EU) and Greece came to terms on the next round of bailout money, €8.5 billion, €7 billion of which Greece needs to pay its debts in July. As part of the deal, the due dates on some Greek debt were extended and a plan is being developed to link debt payments to growth, though few specifics were revealed. Jeroen Dijsselbloem, the president of the Eurogroup, said the plan would “enable Greece to stand on its own feet again over the course of the next year.” Less upbeat, Greece’s Finance Minister Euclid Tsakalotos, said of the agreement, “Is it as much clarity as the Greek people deserve after all the reforms that have been carried out and all the sacrifices that have been made? Perhaps not. But we recognize that we do not want the perfect to be the enemy of the good.”

Brexit negotiations set to begin

Great Britain and the EU will begin discussions about Britain’s withdrawal from the EU today, with Britain’s Prime Minister Theresa May having seemingly lost some of her bargaining power because of the recent election fiasco which cost her a ruling majority in Parliament. Trying to hold onto her job in the face of a party uprising, May began the week by shuffling some cabinet positions and telling her fellow Conservative Party members, “I got us into this mess, I’m going to get us out of it.”

Retail sales dip

Thanks in part to lower prices at the pump, retail sales were down 0.3% in May from the month before to $473.8 billion, but were up 3.8% from a year earlier. In other news, the Producer Price Index (PPI) was flat in May from the month before and up 2.4% over the past year; core PPI, excluding food and energy, rose 0.3% for the month and 2.1% for the year. The Consumer Price Index (CPI) fell 0.1% in May and was up only 1.9% over the past year; core CPI increased 1% month over month and 1.7% year over year. Industrial production was unchanged in May from April, while manufacturing dipped 0.4%. Capacity utilization inched down to 76.6% from April’s 76.7%. Business inventories declined 0.2% in April from March. Housing starts fell for the third month in a row, down 4.5% in May from April to an annualized rate of 1.092 million. The National Federation of Independent Businesses Optimism Index was 104.5 in May, unchanged from April. The National Association of Home Builders /Wells Fargo Index of builder’s confidence dropped to 67 in June from 69 in May. And first-time jobless claims for the week ending June 10 fell 8,000 to 237,000; the four-week moving average climbed 1,000 to 243,000.

A look ahead

The coming week’s releases will include updates on the current account balance, new and existing home sales, the Conference Board’s Leading Economic Index and Markit’s Manufacturing Purchasing Managers’ Indices.

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The opinions expressed are those of Northwestern Mutual as of the date stated on this economic commentary and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Information and opinions are derived from proprietary and non-proprietary sources. Sources may include Bloomberg, Morningstar, FactSet and Standard & Poor’s.

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Standard and Poor’s 500 Index® (S&P 500®) is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Standard & Poor’s offers sector indices on the S&P 500 based upon the Global Industry Classification Standard (GICS®). This standard is jointly maintained by Standard & Poor’s and MSCI. Each stock is classified into one of 10 sectors, 24 industry groups, 67 industries and 147 sub-industries according to their largest source of revenue. Standard & Poor’s and MSCI jointly determine all classifications. The 10 sectors are Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecommunication Services and Utilities.

The MSCI EAFE Index measure international equity performance. It comprises the MSCI country indices that represent developed markets outside of North America: Europe, Australasia and the Far East.

Barclays Capital US Aggregate Bond Index is a benchmark index composed of US securities in Treasury, Government-Related, Corporate, and Securitized sectors. It includes securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $250 million.

The 10-year Treasury Note Rate is the yield on U.S. Government-issued 10-year debt.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

The European Union (EU) is an economic and political union of 28 member states which are located primarily in Europe.

Brexit is a term for the potential or hypothetical departure of the United Kingdom from the European Union.

The Producer Price Index (PPI) measures the average change over time in the selling prices received by domestic producers for their output.

Core Producer Price Index (PPI) is a subset of the total PPI that excludes the highly volatile food and energy prices. Preliminary PPI data and a final revision from the previous four months are released by the Bureau of Labor statistics during the second week of each month.

The U.S. Department of Labor Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.

Core Consumer Price Indexes (CPI) is a method for measuring core inflation. It is the Consumer Price Index (CPI) excluding energy and food prices. There are many other methods for calculating core inflation, but this is the most popular measurement. This method has become the most widely used because food and energy prices can be very volatile, and this wide amount of movement would unfairly bias the measure of inflation.

The National Federation of Independent Business (NFIB) is a small business association representing small and independent businesses. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its members in Washington and all 50 state capitals.

The National Federation of Independent Businesses Optimism Index is a monthly business outlook survey of small and independent business owners who are members of the NFIB.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

The Conference Board’s Leading Economic Index is intended to forecast future economic activity and is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of 10 key variables. These variables have historically turned downward before a recession and upward before an expansion.

The Markit Purchasing Managers’ Indices are monthly economic surveys of selected companies. They provide insight into the private sector economy by tracking variables such as output, new orders, employment and prices across key sectors.

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